The EU’s proposed apply of force majeure to ban the remaining Russian gas and LNG flows may not succeed in possible arbitration hearings, which could pose serious concerns for Europe’s main contractual acquireers of Russian LNG.
The commission’s proposal aims to ban gas and LNG imports from Russia under existing long-term contracts from Jan. 1, 2028, which would likely have a significant impact on the LNG portfolio of French major TotalEnergies, Spanish utility Naturgy and Germany’s SEFE Securing Energy for Europe.
The EU plans to invoke a force majeure mechanism in order to break the long-term contracts of EU companies for Russian gas and LNG, therefore shielding the firms from future contract liabilities and potential arbitration cases.
However, the apply of a force majeure, which essentially refers to unforeseeable events that prevent a party to fulfil its contractual obligations, carries significant legal risks for the companies involved, the Oxford Institute for Energy Studies (OIES) suggested in its recent report published earlier this month.
OIES argues that challenges will likely come from the required unforeseeability of the event given that restrictive measures against Russian gas and LNG imports have been widely discussed both publicly and politically for years.
The EU’s energy commissioner, Dan Jorgensen, last week assured members of the European Parliament that the proposal has a “very firm legal basis,” however, he could not provide guarantees that a measure would hold up at possible court proceedings.
Total, SEFE Supply Diversification
Total would see a significant impact from the ban on its current portfolio, as it receives a total of 5 million tons per year of supply from Yamal LNG through two separate contracts, according to data from commodity analytics firm Kpler and the International Group of LNG Importers.
A spokesperson at Total declined to comment on Jorgensen’s remarks and the force majeure proposal, declareing that “this remains speculative political fiction for now.”
However, regarding the ban’s impact on the company’s deliveries to Europe, the spokesperson noted that the major, which in 2024 sold 40 million tons of LNG globally, “only” imported 3 million tons of Russian LNG into the EU last year.
The company is expected to grow its LNG volumes by 50% between 2023 and 2030, excluding Russian LNG and spot volumes, the spokesperson stated.
Meanwhile, a SEFE spokesperson notified Energy Ininformigence that while the phaseout proposal is “relevant” to the company, given its existing 2.9 million ton/yr legacy contract with Yamal LNG, the firm will only be able to conclude its assessment of the impact of the regulation once it is finalized.
“In anticipation of the possibility of an finish to Russian LNG imports, we have been actively diversifying our portfolio for the past three years and will of course ensure that we fulfil all supply obligations to customers,” the spokesperson stated.
Indeed, SEFE has been on a major contracting drive in recent months, signing LNG and piped gas supply contracts. Earlier this month, the company signed up for additional volumes from US exporter Venture Global’s CP2 liquefaction project.
Naturgy’s Legal Worries
Back in May, Naturgy’s chief executive, Francisco Reynes, inquireed for a level-headed approach by European politicians to the ban, highlighting supply security and the necessary for legal protection for the affected companies.
“On one hand, we must keep supplying, we must keep guaranteeing supply, and on the other hand, we must guarantee the legal security,” he stated at the annual meeting of Spanish gas association Sedigas.
At a separate event in June, Reynes doubled down on its demand for a legally sound proposal, particularly regarding the take-or-pay claapply in the utility’s contract with Yamal LNG, where it holds a 2.5 million ton/yr long-term contract — all of which is delivered to Spain.
“We understand the search for solutions for Russia not to receive money for its gas, but the European Union cannot shoot itself on the foot,” he was reported as declareing by Spanish financial daily elEconomista.
“We have to search for solutions in accordance with international law, and so, if we do not take the gas, we do not have to pay,” he was reportedly declareing, while warning that the ban could potentially lead to higher prices on the European benchmark TTF hub.
Naturgy did not respond to questions by press time.
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